The fallout from a falling dollar

The Christian Science Moniter reports:

For two weeks, the dollar has been hammered as foreign buyers shun the US currency.

As a result, the Canadian "loonie" is at its highest point in 30 years. The British pound is at its uppermost level since last September. Even the closely managed yen is at a six-month peak.




If the dollar were to continue falling, it could have wide ramifications:

• It could imperil the economy next year because Fed Chairman Ben Bernanke might have to defend the currency with higher interest rates.

• A lower-valued dollar makes imports more expensive, possibly ratcheting up the inflation rate. But it could also stimulate US exports, thus providing more jobs.

• This summer, Americans traveling abroad will feel as if everything is expensive. However, foreigners coming to America will feel as if the country is one giant Wal-Mart.

Behind the falling currency is a changing global economy. As the US Federal Reserve appears to be near the end of its round of interest-rate hikes, foreign banks are starting to hike their rates - which puts foreign currencies in higher demand, thus making the dollar less attractive.

The dollar is losing some of its luster as the world reserve currency.Holding other variables equal,the United States will have to have higher interest rates.Here a monthly futures chart of the U.S Dollar Index.